However, he said the company did see some larger deals that helped revenue touch the levels it reported in the second quarter.

Zebra, which competes with companies like Intermec Technologies Inc IN.N and Hewlett-Packard Co (HPQ.N), gets about 50 percent of its revenue from manufacturing end markets and 20 percent from retail.

“Capital spending in those markets and spending on information technology has continued to be weak and I don’t expect that you are going to see a significant rebound in that spending in the near term,” William Blair & Co analyst Brian Drab said. “It will continue to be challenging till 2010.”

Second-quarter net income fell to $9.0 million, or 15 cents per share, from $25.5 million, or 39 cents per share, a year earlier.

Analysts on average were expecting earnings of 20 cents a share, excluding exceptional items, on revenue of $193.1 million, according to Reuters Estimates.

“The capital expenditures especially in heavy industrial areas were down as a result of macro economic weakness and we hope that will reverse,” Feltl Co analyst Jay Meier said.

Companies that have fixed budgets will be less inclined to buy very expensive machinery, Meier said, adding that the most impacted areas were high-end printers used for industrial printing.

HINT OF STABILIZATION

“The economy is still very challenging but I think we do see signs of stabilization and some indications that our business is stabilizing and strengthening a little bit,” CEO Gustafsson said.

Zebra Technologies, which has seen more of larger deals in last couple of months, is witnessing more opportunities in its pipeline, he added.

Entering into the third quarter, the company had the “healthiest” backlog it has seen in the last 12 months, the CEO said.

The Vernon Hills, Illinois-based company expects third-quarter earnings of 14 cents to 21 cents a share, including expected exit and restructuring costs of 3 cents. It sees revenue of $186 million to $198 million for the period.

Analysts were looking for earnings of 24 cents a share, excluding items, on revenue of $201.2 million.

Zebra Technologies, whose majority of the revenue comes from international markets, counts ScanSource Inc (SCSC.O) as its significant customer.

ScanSource, an international distributor of Zebra products, accounted for 14.3 percent of Zebra’s total net sales for the three months ended April 4.

Zebra shares, which have gained 37 percent over the past six months, were down 2 percent at $24.01 in late afternoon trade on Nasdaq. They touched a low of $22.51 earlier. (Editing by Ratul Ray Chaudhuri and Deepak Kannan)